If the bank statement shows a debit memo of $25 for a service fee, the bank statement balance was decreased by $25. As part of the bank reconciliation process the following entry must be made if the item has not yet been recorded in the company's records: debit Bank Fee Expense or Miscellaneous Expense $25 and credit Cash $25. The company's Cash account needs to be credited because this company's asset account decreased.
The reason the bank used "debit" to decrease the company's checking account is that its customers' checking account balances are liabilities for the bank. (The bank's cash was debited when customers deposited money and the bank's liability account Demand Deposits or Checking Account Deposits was credited.) When the bank pays a customer's check, the bank's cash is reduced and the bank's liabilities are reduced. The bank records this with a credit to Cash and a debit to Demand Deposits.
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